Wednesday, September 30, 2009

Congressional Math

If you traded in a clunker worth $3500, you get $4500 off for an apparent"savings" of $1000.

However, you have to pay taxes on the $4500 come April 15th (something thatno auto dealer will tell you).If you are in the 30% tax bracket, you will pay $1350 on that $4500.

So, rather than save $1000, you actually pay an extra $350 to the feds. Inaddition, you traded in a car that was most likely paid for. Now you have 4or 5 years of payments on a car that you did not need, that was costing youless to run than the payments that you will now be making.

But wait, it gets even better: you also got ripped off by the dealer.For example, every dealer in LA was selling the Ford Focus with all thegoodies including A/C, auto transmission, power windows, etc for $12,500 themonth before the "cash for clunkers" program started.

When "cash for clunkers" came along, they stopped discounting them andinstead sold them at the list price of $15,500. So, you paid $3000 more thanyou would have the month before. (Honda, Toyota, and Kia played the samelist price game that Ford and Chevy did).

So let's do the final tally here:

You traded in a car worth: $3500 You got a discount of:$4500

---------Net so far +$1000 But you have to pay:$1350 in taxes on the $4500

--------Net so far:-$350 And you paid:$3000 more than the car was selling for the month before

----------Net-$3350

We could also add in the additional taxes (sales tax, state tax, etc.) onthe extra $3000 that you paid for the car, along with the 5 years ofinterest on the car loan but let's just stop here.

So who actually made out on the deal? The feds collected taxes on the caralong with taxes on the $4500 they "gave"you. The car dealers made an extra $3000 or more on every car they soldalong with the kickbacks from the manufacturers and the loan companies. Themanufacturers got to dump lots of cars they could not give away the monthbefore. And the poor stupid consumer got saddled with even more debt thatthey cannot afford.

Congress convinced Joe consumer that he was getting$4500 in "free" money from the "government" when in fact Joe was giving awayhis $3500 car and paying an additional $3350 for the privilege.